I'm 45, broke and have more than $50,000 in debt — but my 401(k) is still doing well. Can creditors garnish it if I can't pay?

“Another important consideration is what happens after the money leaves the 401(k),” Yontz said. “Once funds from your 401(k) leave the 401(k) account and are placed into an ordinary bank account, they don’t have the same federal protection.”

While Yontz said Anthony may be able to rely on other exemption laws to protect his withdrawn funds, those protections are not as strong or as comprehensive.

There are federal limits on garnishment, as well as state-specific restrictions on what payments can be garnished. However, Anthony is more likely to lose some of his withdrawn money as a retiree than he was during his working years, when it was still safe in the 401(k) plan. This isn’t necessarily a good thing, as he may really need the funds later in life.

What should Anthony do?

While Anthony may not have to worry about having his 401(k) funds taken, at least not until he starts withdrawing the cash to live on, this doesn’t mean he should ignore his debt or downplay the effects of it.

Owing more than $50,000 could hurt his credit, limit the income he has available for other things because of large monthly payments, and result in Anthony paying a fortune in interest each year. He should be explore solutions, including:

• Refinancing the debt using a lower-interest personal loan to simplify repayment and reduce the cost.
• Negotiating the debt down with his creditors and settling the debt for less than he owes (this could cause his credit to take a hit, but could also mean he gets to repay less than the full amount due)
• Paying extra on his debt to pay off the principal balance faster.

Bankruptcy is also a last resort, and his 401(k) would largely be protected during the process. However, bankruptcy is a drastic option, and one Anthony should consider only if he’s exhausted the other alternatives and sees no way out of the hole.